Russian steel company Severstal has announced its plan for a £3.14 billion listing of its Nord Gold unit on the London Stock Exchange. This initial public offering will have the highest value of that undertaken by any gold company. In 2013, Nord Gold plans to produce one million ounces of gold, a substantial increase from its 2010 production of 589,000 ounces.

By floating a 25 percent stake in a premium listing on the London Stock Exchange, Severstal hopes to raise over $1 billion dollars. Approximately $250 million will be used to pay off loans provided by existing shareholders. An investment of $300 million will be made in projects that increase production. The remaining money, totaling between $450 and $500 million, will be kept as profit by Severstal.

Nord Gold Chief Executive Nikolai Zelenski grew the company into one with over $500 million in annual revenues, within just three years. He did this by purchasing and revitalizing distressed mines located in West Africa, Kazakhstan, and Russia. Mr. Zelenski believes investors find his company attractive because it offers gold market exposure, is fully unhedged, and has a high growth rate.

Despite all of these positives and a gold price nearing $1,400 an ounce, some analysts feel that investors may have an issue with valuing assets at $5 billion. Nomura analysts valued these at only $3.6

billion in September. To make the picture worse, just $1.3 billion was spent by Nord Gold to purchase and develop these assets.

Nord Gold currently has 8.9 million ounces of probable and proven gold reserves. It also has approximately 23 million ounces of gold resources. Mr. Zelenski believes that investors will look at the current value of the assets versus their value when they were purchased in bad condition. However, analysts point to the short history of operation of the these assets, despite the significant cash flows.